Case Law Details
Bank of Nova Scotia Vs Assistant Director of Income Tax (ITAT Mumbai)
ITAT Mumbai held that disallowance made u/s. 14A of the Income Tax Act read with rule 8D deleted as tax free funds were more than investment made on which exempt income was earned.
Facts- During the course of assessment, AO noticed that assessee has earned interest income of Rs.2,77,57,534/- from 1997- 1998 series of NABARD Bonds which has been claimed as exempt from income tax u/s 10(15) (iv) (h) of the Act. After referring the tax free funds the assessee submitted that no disallowance u/s 14A should have been However, the AO has not agreed with the submission of the assessee and disallowed an amount of Rs.9,56,892/- u/s 14A r.w.Rule 8D towards expenditure incurred for earning the exempt income.
The assessee filed the appeal before the ld. CIT(A). however, the CIT(A) further made enhancement to the disallowance by Rs.3,2 1,184/- and sustained the total amount of disallowance of Rs. 12,78,076/- as an expenditure incurred towards earning the exempt income. Being aggrieved, the present appeal is filed.
Conclusion- Hon’ble Apex Court in the case of South Indian Bank Ltd. vs. CIT has reiterated the legal position, “that the proportionate disallowance of interest is not warranted u/s.14A of the Income Tax Act for investment made in tax free bonds/ securities which yielded tax free dividend and interest to assessee bank in those situation where, the interest free own funds available with the assessee, exceeded their investment.”.
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